The Political Economy of Development in IndiaByPranab BakdhanOxford University PressPrice: Rs 60; Pages: 118

Is the Indian economy speeding up or slowing down? The answer, if one turns to economists, is predictably unhelpful, with some arguing the first and others the second. Isher Judge Ahluwalia presents a mass of evidence in her well-argued book to justify its title, and Pranab Bardhan takes off from here to look at the reasons for the economy's unconvincing performance.

Yet there are others who argue quite the opposite from Ahluwalia: K.N. Raj, for instance, has disagreed with her conclusions in an article published by The Economic and Political Weekly, and Yogendra Alagh in a recent Govind Ballabh Pant lecture has contended that the growth performance has, if anything, been improving.

There have, in the process, been disputes over the statistics which were used to measure economic performance, and over the periods studied (Ahluwalia argues, for instance, that growth has slowed down since the mid-'60s, but Alagh says growth has picked up since the mid-'70s).

Nevertheless, the debate has been instructive. Ahluwalia shows, for instance, that some of the common arguments put forward as explanations for the industrial slowdown since the mid-'60s have no validity. Using well-organised sets of statistics, she shows that the slowdown has nothing to do with rising poverty or a worsening pattern of income distribution.

Similarly, the slowdown is not because of a wage goods constraint, for if this were the case the sectors to be affected would have been the employment-intensive ones. Instead, the real slowdown in the last two decades has been in the capital-intensive heavy industry sector.

Finally, she dismisses the argument that the slackening of the import substitution drive since the mid-'60s caused industry to slow down: import substitution has continued after that in heavy industry, which has grown slowly, while consumer durables have grown rather rapidly despite the absence of a similar import substitution drive.

If these are not the reasons, what is the real answer? Ahluwalia offers not one but many. To start with, she says, there has been a slowdown in public investment in key infrastructural sectors, leading to severe supply-side bottlenecks that have been compounded by the poor management of the infrastructure.

Apart from these, the continued slow growth of agricultural incomes has meant that demand for goods has increased slowly. Finally, the framework of industrial policy has led to more regulation than promotion, avoidable delays in investment decisions, the absence of foreign competition and the curbing of domestic competition, the use of dated technologies, and the absence of any incentive to reduce costs, leading to a high-cost industrial superstructure.

Ahluwalia also argues that there has been an overall decline in the growth of productivity. She notes the steady increases in the capital-output ratios over time, and goes on to demolish the usual argument put forward as the explanation, which is that this results from the capital-intensive nature of the pattern of investment. Instead, she shows that there is evidence of growing inefficiencies in the use of the factors of production.

Ahluwalia's case is well argued, and it is difficult to fault her conclusions concerning the reasons for the industrial slowdown since the mid-'60s. But the fact remains that if the period from the mid-'60s to the mid-'80s is further broken up into two phases, before and after 1976, the statistics suggest that the picture could be different from the one drawn by Ahluwalia. But since she does not take note of this, she has no explanations to offer either.

Bardhan's readable offering is based on his Radhakrishnan Memorial Lectures, delivered at All Souls College, Oxford, and attempts something quite different from Ahluwalia. He focuses essentially on aspects of India's political economy in his search for the reasons for India's slow economic growth.

Sharing common ground with Ahluwalia in spotting the role played by insufficient public investment in the agricultural and industrial infrastructure, and of "public management of capital", Bardhan goes on to an illuminating discussion of the economic classes that dominate the Indian state.

He outlines three "proprietory classes" in Indian society: the industrial capitalist class, the rich farmers and the professionals. In one way or other, all three have tried to garner advantages for themselves.

The first used the Government's import substitution and trade restriction policies to advantage while flouting other policies that went against their interests (e.g. licensing curbs), the farmers have got away with virtually no significant taxation of their incomes and wealth, while enjoying subsidies on power and irrigation, and the professionals have managed to direct educational investment away from the masses and thus "been able to protect their scarcity rent" while acquiring licence-giving powers in the bureaucracy.

There are, of course, conflicts between these classes, and it is Bardhan's thesis that, with none of the three dominant classes able to reign supreme, there is a loose and uneasy coalition, with each pulling in different directions.

The result: a proliferation of subsidies to satisfy each class, and the consequent eating up of government revenue through the privatisation of public resources, leaving little behind for public capital formation.

The final result of the plurality of proprietory classes is the 'soft state', and the absence of 'political will' for hard decisions. As a spillover, the "competitive politics of democracy" keeps the rival partners in the coalition on the defensive.

While this is certainly not a complete explanation it does point to a fundamental truth about the Indian system. In a different context, Ahluwalia has helped clarify the issues in the growth debate. Both offerings are valuable aids to understanding India's economic reality.

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